"Each President is a temporary tenant, not the owner, of the White House" and cannot fundamentally reshape it without congressional approval, the Washington-based US Court of Appeals for the District of Columbia Circuit said in a 2-1 opinion.
The order upheld a preliminary injunction won by the National Trust for Historic Preservation, which sued last year after the administration tore down the East Wing and began building a $US400,000 ($A566,000), 8360sqm ballroom without seeking authorisation from Congress.
"Whether or not a massive ballroom should be constructed is for Congress to decide and is not a matter for Executive self-help," the panel's majority wrote.
"Congress has not ceded unfettered authority to the Executive Branch to dramatically redesign, reshape, and reconstruct the White House - the People's House - to fit a particular President's desires."
The appeals court placed its ruling on hold for 14 days to allow the Trump administration to appeal to the US Supreme Court.
The White House and Justice Department did not immediately respond to requests for comment.
The National Trust president Brent Leggs in a statement said the ruling marked "a great day for our country and for the American people's right to voice their opinions about the historic places they cherish, including the White House."
Trump appealed after US District Judge Richard Leon, an appointee of Republican former President George W Bush, twice blocked above-ground construction on the site while allowing underground work to continue.
The ballroom plan, which the administration has described as necessary for large formal functions and to preserve the safety of the White House, is the grandest of several Trump efforts to reshape central Washington's landscape of government buildings and national monuments.
A judge in a separate lawsuit recently said Trump's name was illegally added to the exterior of the Kennedy Center performing arts venue and ordered its removal.
In the ballroom case, Justice Department lawyer Yaakov Roth said during DC Circuit arguments on June 5 that the courts have no role in weighing the privately funded project.
He said the National Trust's "architectural preference" should not take precedence over national security concerns, claiming evidence that the former East Wing left the president and others in the White House vulnerable to attack.
"They just don't want to go to Congress," countered Thaddeus Heuer, a lawyer for the preservation group.
The Democratic-appointed judges in the appeals court's majority said their order does not permanently bar construction of a ballroom, but halts above-ground work during the lawsuit and until the White House secures approval from Congress.
"The bold assertion that the Executive can act with utter lawlessness, destroying treasured national landmarks and harming the interests of individuals, and that no court can stop it flouts our constitutional order," the panel majority said.
National security arguments "are not an automatic get-out-of-law-free card", they said.
In her dissent, Circuit Judge Neomi Rao, whom Trump appointed during his first term, said the trial judge's injunction blocking the project "is beyond the proper province of the federal courts" and that construction should be allowed to continue.
"The district court seized supervision of construction at the White House, and my colleagues affirm this judicial overreach," Rao wrote.
Trump has defended his ballroom and its price tag, which has doubled from initial projections. Trump said in a post on Truth Social in May that the cost rose because "it is approximately twice the size, and a far higher quality, than the original proposal" and promised "it will be magnificent, safe, and secure!"
